Sunday, May 8, 2016

For those who live and breathe in the investing world, they know that the bond markets are much bigger than the stock markets. And while a decline or even collapse in equities is a bad thing, it doesn't hold a candle to the economic destruction that can come from the same results in the bond market.

For many years following the 2008 credit crisis, and subsequent move by the Fed to zero interest rates, bonds have been a primary safe haven for banks, investors, and even sovereign governments, especially to foreigners looking to eek out a return in a wildly speculative market climate. And with the search for yield at all costs helping to create a derivative 'weapon of mass economic destruction', the question few in the financial community have asked is, what would we do when the unwinding of bonds and derivatives comes?

Well, it appears one of the answers to this is the rush into gold, and as the unwinding of junk bonds begins in earnest, many are seeing the precious metal a viable safe haven for what is coming next.

As Bloomberg reports, the withdrawals from equity and credit
funds highlighted the lack of faith in the rally that helped stocks briefly
erase their annual losses last month. Equity traders have remained on the
sidelines, with volume down in recent weeks as investors sought safer assets
such as gold.

The S&P 500 just suffered its biggest two-week retreat
since February as signs of slowing growth in the world’s largest economy
mounted. Worldwide stock ETFs lost $12.6 billion in the four days through May
5, wiping out more than six weeks of inflows, as the MSCI All-Country World
Index capped its worst week in three months.

“The market is becoming more cautious and using ETFs to
allocate tactically. We’ll probably continue to see more flows into gold and
less into equities.”

The $5.3 billion pulled from State Street’s SPDR S&P 500
ETF Trust represented more than 40 percent of the total withdrawals recorded in
the first days of the month, according to data compiled by Bloomberg tracking
funds of more than $100 million. Underscoring the flight from risk assets,
BlackRock Inc.’s iShares iBoxx $ High Yield Corporate Bond ETF also saw
outflows as traders yanked $2.3 billion from it.

Instead, they poured more than $1 billion in the
SPDR Gold Shares and almost $540 million in the iShares TIPS ETF, which tracks
inflation-protected Treasury notes. - Zerohedge